Retirement typically marks the start of a new chapter; however, it also means taking a fresh look at how you manage your money. Now you’re not working, your income comes from pensions, savings and investments — and making those resources last is key.
Whether you’ve just stopped working or you’re in the first few years of retirement, this article will help you navigate the financial side of this transition. From managing your investments to understanding tax on your pension withdrawals, we’ll cover the essentials to help you feel in control and confident about your financial future.
How can I take my money in retirement?
When you retire, you typically have several options for accessing your pension savings – and the right choice depends on your lifestyle goals, financial needs, and attitude to risk.
- Drawdown (flexi-access drawdown)
This is a way of withdrawing from your pension that enables you to take some money whilst leaving the rest invested. You can normally take up to 25% of however much of your pension you ‘activate’ in this way, leaving the other 75%, leaving the rest invested in a drawdown plan.
You can take your whole pension pot as cash straight away if you want to, no matter what size it is. A total of 25% of your total pension pot will be tax-free while you’ll pay tax on the rest as if it were income.
- Buy a guaranteed income for life (annuity)
You can use some or all your pension to purchase an annuity at any time. Annuities will convert your pension pot into a guaranteed regular income for the rest of your life, no matter how long that is.
- Small pots (a pension worth up to £10,000)
There are rules that allow you to cash in a small pension pot of £10,000 or less, if you’ve reached age 55 and the payment covers all your rights in the scheme.
You must take the whole pension pot at one time and this will close the pension following the withdrawal, however it is usual for 25% of the withdrawal to be tax-free and the other 75% of the withdrawal will be taxed at your marginal income tax rate.
Before making any decisions, it’s a good idea to speak to a financial adviser. You can also access help through Pension Wise, a government service offering free, impartial guidance on your options.
Have an idea where your income is coming from
Along with most people, the bulk of your income in retirement may come from pension arrangements you’ve accumulated over your working career. These could be a mix of company schemes run by your employer or personal plans you’ve set up yourself.
Pension consolidation is the process of bringing together multiple pension schemes. It is as straightforward as identifying what pensions you have and then transferring them into one pension provider.
This means you can see your investment performance in one place, giving you a better idea of how you are progressing towards your retirement goal. However, not all pension types can or should be transferred, and the amount you may potentially pay in pension transfer charges or exit penalties will vary from provider to provider and from scheme to scheme so it’s important to ensure you are thoroughly reviewing your options. A financial adviser can help you make the right decision.
There is a government pension tracing service available which can help. Ultimately, any decision around your pension pot is a big one and speaking to a financial adviser could help you decide what course of action to take.
When looking for your pension, providers may ask for details such as your pension plan number, National Insurance Number, relevant dates, and employer details. Be prepared and have this information ready.
Try to minimise the amount of tax you pay
Once you start drawing from your pensions and other income sources in retirement, you may want to consider the tax implications. While 25% of most defined contribution pensions can be taken tax-free, the rest is taxed as income.
Spread out your pension withdrawals
Instead of taking a large lump sum in one go, phasing your withdrawals could help keep your annual income lower and avoids pushing you into a higher tax bracket unnecessarily.
Understanding any other income sources
In retirement, your income might come from a mix of sources: pensions, savings, investments, property rental, or even part-time work.
ISA income and withdrawals are tax-free, while dividends have their own tax-free allowance (£500 in 2025/26).
Rental income is taxed at the rate applicable to your Income Tax band.
Key thresholds to watch out for
- £12,570 – Personal Allowance limit
- £50,270 – Higher-rate tax threshold
- £100,000 – Any income over this will cause your Personal Allowance to taper
How often should I review my investments?
Once you’re retired, your investments still play a key role in supporting your income and helping your money last — especially if you’re in a drawdown plan or have money in ISAs, General Investment Accounts (GIAs) or other savings. But retirement doesn’t mean setting your investments on autopilot – regular reviews are essential in ensuring your portfolio stays aligned with your needs, risk tolerance, and market conditions.
It could also be helpful to review your investments if there’s been a significant change in your life, such as family events or in your spending needs, as well as in the wider financial world.
Don’t forget your State Pension
The State Pension is a regular payment from the government that you can claim when you reach State Pension age. Not everyone gets the same amount, but if you’re looking to review your income requirement in retirement, it’s a good idea to include your State Pension.
As of the latest updates, the full new state pension is £230.25 per week for the 2025/26 tax year, although the exact amount depends on your National Insurance contributions over your working life.
The State Pension age is currently 66 for both men and women, but it is set to increase in the future. Understanding your entitlement is crucial for retirement planning. You can check your State Pension forecast online to see how much you are likely to receive and when you can start claiming it.
It may not be enough to live comfortably on, but it provides a very useful, guaranteed income which, under current rules, will increase in value each year.
Managing retirement and investment risks
While retirement can offer more freedom and flexibility, your savings now need to last potentially 25 to 30 years.
With life expectancy rising, it’s wise to plan as if you’ll live into your 90s — especially if you’re healthy and have retired early.
The 4% rule
Research from the Pensions and Lifetime Savings Association suggests retirees need an income of £31,300 for a moderate retirement and for a couple, £43,100.
For a comfortable retirement, a single person would require an income of £43,100 and a couple £59,000.
The 4% rule is a popular strategy that suggests retirees can safely use the amount equal to 4% of their total savings as a starting point for withdrawals of their pension in their first year of retirement. They can then withdraw roughly the same figure, adjusted for inflation, each year for the next 30 years.
As an example – if you retire with a pension pot of £400,000, this rule suggests you could safely withdraw £16,000 in your first year and potentially the same amount, adjusted for inflation, across the following 30 years.
Meanwhile, rules around pensions, tax, and benefits can (and often do) change.
What works today might need adjusting tomorrow.
How to manage it:
- Stay informed about changes to pension rules and tax bands
- Make use of allowances (such as ISAs, dividend allowances, and pension carry-forward rules)
- Speak to a financial adviser periodically to adapt your plan to any new legislation or changes in your income needs
Diversifying your investments
Investors use diversification to help manage the risks of their portfolio by spreading investments across different assets and sectors.
It can be good to consider how the balance of assets in your overall portfolio reflect your appetite for risk and reward.
For example, a balanced portfolio in retirement could include a mix such as 40% equities, 40% bonds, 10% property, and 10% cash — but yours should reflect your own risk tolerance and income needs.
There are different vehicles you can use for diversification. For example, pensions are good for long-term growth and tax efficiency, especially while drawing income gradually, while ISAs offer tax-free income and gains — ideal for flexible access in retirement.
Why diversification matters in retirement
- It reduces volatility so your income is potentially less affected by market swings
- It spreads risk so one bad investment doesn’t derail your whole plan
- It supports sustainable income — balancing growth with stability
Deciding on the asset allocation of your portfolio is a complex task and you should speak to your financial adviser before making any investment decisions.
Final thoughts
By taking the time to assess your financial goals, understand the options, and make informed proposals, you can help secure a comfortable and fulfilling retirement
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. This material is not a personal recommendation or financial advice and the investments referred to may not be suitable for all investors.
Tax is subject to an individual’s personal circumstances and tax rules can change at any time.
Pension eligibility and tax rules apply. You should ensure your contribution does not result in your total Pension contribution within the tax year exceeding £60,000 or 100% of your earnings, whichever is lower.
ISA eligibility and tax rules apply. You should ensure your contribution does not result in your total ISA contribution within the tax year exceeding £20,000.
True Potential Wealth Management is authorised and regulated by the Financial Conduct Authority. FRN 529810. Registered in England and Wales as a Limited Liability Partnership No. OC356611.
True Potential Investments LLP is authorised and regulated by the Financial Conduct Authority. FRN 527444. Registered in England and Wales as a Limited Liability Partnership No. OC356027.
True Potential LLP is registered in England and Wales as a Limited Liability Partnership No. OC380771.
